gosh, i wish it was 2009 again or something like that, do you? >> not '09. definitely not '09. thank you, melissa. thank you. >> yeah. >> thank you. >> folks, happy new year. have a great weekend. make sure you join us on tuesday. have a wonderful, wonderful new year. "squawk on the street" begins right now. ♪ good morning and welcome to "squawk on the street." i'm david faber along with sara eisen, wilfred frost and mike santoli. we're live from the new york stock exchange on this last trading day of the year. jim and carl are off today. i think everybody will be back on tuesday. let's give you a look at futures here. >> not me. >> not you. all right. eisen's out but everybody else is back. there we are. looking for an up open this morning. european markets have tended towards looking positive, as you see right there. you know, not obviously huge moves, but up nonetheless.

the ten-year note yield let's take a look at where we stand right now in what has been of course one of the bigger stories towards the end of this year, but price moving up a tiny bit lately with the yield map 2.481. there you see wti. let's get to our roadmap this morning. and it starts with that geopolitical news. russia's holding off on retaliation. president vladimir putin responding to u.s. sanctions in the wake of alleged election hacking. >> futures indicating a higher open on this final trading day of 2016. we'll look back at the best and worst performers and talk strategy for the year ahead. >> plus, 2016 was a tough year for retailers. will the pressures ease in the new year? >> well, russia's president vladimir putin says he will not expel anyone after recommended deporting 35 american diplomats and closing two diplomatic facilities in retaliation for similar closures here. john harwood joins us now from washington with more on the

story. john. >> david, vladimir putin and his government played a little teaser game this morning with lavrov coming out saying he was recommending the expulsion of 35 diplomats to match our expulsion of 35 russian diplomats, the closure of two facilities to match our closure of the facilities on the maryland eastern shore and in new york. but just a few minutes ago vladimir putin put out a statement saying we have the right to retaliate, but we're not going to engage in kitchen diplomacy. said we are going instead to wait and see what the policies are of the new trump administration. he even said it's regrettable that the obama administration's closing out this way, but i extend my new year's greetings to president obama and his family. now, michael mcfall, the former ambassador to russia from the united states was on our air a few minutes ago and said this was a notable response from vladimir putin that makes a bet. take a listen. >> it's unusual.

usually in one of these instances there's a tit-for-tat response and even foreign minister lavrov already had put together the names of diplomats to expel. but obviously president putin has decided he's going to wait and deal with the next guy. and just three or four, you know, just in a matter of weeks. so this is different. he's putting his bets on president trump. >> now, it's probably a good bet because donald trump has not accepted the consensus of the intelligence community that russia was behind the election hack. he did say last night in a statement that did not mention russia that he would be holding a meeting with intelligence officials next week. but the fact vladimir putin is not engaging in the tit-for-tat makes it easier for him -- donald trump that is, to achieve with the united states and russia, we're going to wait and see what the results are of the fuller investigation that the obama administration says it's going to release in january, reviewing all of the intelligence information. this

is an unpredictable story and we know that the president-elect is going to face pressure within his own party because john mccain and lindsey graham said so yesterday afternoon for even tougher sanctions than the obama administration's announced so far. >> thank you, john. john harwood from washington. joining us now on the cnbc news line is ambassador ken former u.s. ambassador to -- ambassador, give me your take on the obama move yesterday? do you agree with it? and what do you think will follow? >> yes, i certainly do agree with it. this was a very direct and a very unambiguous effort not only to influence both the election apparently, but also to demonstrate that democratic political systems have a lot of corruption and weaknesses. and that their system that he

propagates is a much more solid and sort of stable one going towards the future. this is unprecedented, you know, to interfere in our elections like this. they have criticized our efforts at democracy promotion in the former soviet union, but those were overt. those were very open efforts to help democratic political parties. but this was covert and definitely designed to weaken our system. >> well, mr. ambassador, you know, you may believe fully that the russians were behind these hacks, but it's not clear the president-elect yet has come to that conclusion. and it would appear that president putin is sort of expecting and waiting for the next administration to take its place and to have a very different relationship. do you think that will be the case? and is it possible that

president trump will simply reverse the sanctions that were issued yesterday? >> well, i hope not. i think a broader perspective is useful here. another event yesterday was the cease-fire in syria for which mr. putin is taking great credit for. he is placing himself, posturing himself as a world class negotiator and a very influential figure. and by taking, you know, apparently the high ground on not retaliating, you know, he is basically, you know, trying to come across as someone interested in improving relationships. you know, someone who really is the big deal maker and decision maker on the world scene. so clearly it's a gesture at mr. trump, but it's also designed, you know, to demonstrate that russia and mr. putin are major powers on the world scene.

>> ambassador, does having someone like rex tillerson who has an existing relationship with president putin bring you a sense of encouragement as we approach the new administration? or does it give you nerves that it means these types of sanctions are likely to be rolled back on day one? >> my belief is that the relationship between the u.s. and russia right now is fraught with a number of very serious problems. and the notion that any single summit meeting, you know, very over the near-term is going to solve these problems. it really i think beyond credibility. i don't know what mr. trump is going to do, but my advice would be to come in, read all the intelligence, get the briefing from your security advisors and then make an informed decision and not to rush to conclusion that, you know, some great big

deal as a result of one summit meeting is going to solve everything. i don't think the world works that way. >> mr. ambassador, i don't know if you saw the russian embassy out of the uk's tweet yesterday when they announced this deal. we have it up for you. i'll read it. president obama expels 35 russian diplomats in cold war deja vu as everybody including american people will be glad to see the last of this hapless administration. and then they have a picture of a little duckling and they write the word lame on top. lame duck. is this what diplomacy looks like in 2017 in 140 characters and images? >> i hope not. obviously i've spent a lifetime, you know, in diplomacy. and diplomacy involves a lot of careful thought, discussion and negotiation to reach agreements. i don't think the world has changed that much that that is

now passe. clearly what mr. putin's people are doing in london, you know, is trying to sort of cast off the obama administration as lame ducks, as cold warriors and laying the ground work for what they would hope would be this large new deal with the united states. we must talk to russia. it's critical. we have many, many important issues to deal with them, and i advocate certainly keeping a dialogue with russia. but, you know, it's going to have to be done piece by piece and not any major overall one summit agreement. >> and finally, mr. ambassador, you worked obviously in a republican administration, there's an incoming republican administration that seems to have differing views of this matter than you do, but there are also senators like mccain and lindsey graham who seem to agree. are they going to have an important role here in your opinion? >> well, i do think so.

i think the congress -- you know, this is one of the really interesting things that happened in the election and mainly because of mr. trump is sort of a different view on russia. when people will step back and take a look, you know, at what was done and our elections and also don't forget that some of these sanctions were done as a result of actions taken against our diplomats in russia. i think any fair minded person is going to realize there were actions here that had to be responded to. and i don't think the congress and the american people will walk away from that. but again, just to emphasize, we must keep the dialogue going with the russians. we must continue to work, you know, in areas where we can. we've also got to draw the lines on when they overstep them as they have. >> all right.

we will leave it there for now at least. ambassador, thank you for joining us. >> my pleasure. thank you. >> ambassador kenneth yalowitz. it's the last day of 2016 trading session. let's look at how wall street has performed so far this year. surprisingly strong. the s&p sectors leading the pack, energy soaring 24%, financials are up a whopping 20%, telecom up 19% so far this year. and then on the losing side of things, health care sliding the most down 4%. real estate is down about 1%. consumer staples up 3%, but still the sector lagged compared to the overall market. taking a quick look at futures on this final trading day, they're up which might be an appropriate way to end an up month, quarter and year. dow futures up 38, s&p up nearly 5, nasdaq up 7. mike, it comes after two days of declines. and the question i guess is has some of the enthusiasm after the election about lower corporate

taxes and looser regulations and more pro growth fiscal stimulus eased at all in the last few session sessions? >> i think some of the energy has waned. markets have flattened for the last two weeks, i don't know if it's a rethinking of the premise, but it's a matter of, look, we priced a lot in in a very short time in five weeks following the election. in fact a lot of the rally began in the weeks prior in a more subtle way. to me the headline is where we're going to open today in the s&p 500 is a 10% year-to-date return, 12.5% or so including dividends. the dow is going to be close to a 17% return. and it was actually hard to avoid the pain in the first two months of the year, almost anywhere in the world. and it's been hard actually not to make money in almost everything. high yield debt up 15% total return, oil of course up 50% -- >> the dollar. >> the dollar. and emerging markets up about 10% too. so the question is have we sort of priced ourselves going into 2016 building in a lot of that anticipated positive news?

>> when you bring that question up specifically, you look at the financials, up 20% year-to-date. obviously a huge surge in the fourth quarter. i like to look at what's happened to the yield curve. although we've had this surge in yields in the fourth quarter, compared to the start of the year, the much bigger differentials at the shorter end of the curve. and i bring that up because clearly we are pricing in fwo to three rate hikes next year. the market is much more confident that the fed will deliver this time around than it did last year and that's why bank share prices have rallied so much. again, another factor that shows quite a lot of the potential we could see in 2017 already priced in the move we've seen in the fourth quarter. >> if you look at some of the wall street forecasts, the strategists we follow, i think david coston at goldman sachs at bottom, they're all within a range and all based on the premise stocks will rise not as much as they have risen this year and many going back to the valuation argument. >> yeah. >> i just wonder if that's going to hold up. we are now historically above

valuations for the overall stock market, but we're also talking about animal spirits and breaking out of the 2% growth and what st that going to mean -- >> you're talking about the qualitative side very hard to fit into the models and spread sheets that they're using. i think it's very hard to make a case that multiples should go up much from here given the fact that the fed's going to be tightening and just the general level of interest rates. if they're right about that part, are going to be going up. >> exactly. discount rate going up completely adjust the -- >> although one place you didn't make money is in wilfred's beloved british pound down 16% for the year. >> gets brought up every single time. >> it's great. we're going shopping over there. >> dollar also against the euro and down even more against the yen. it was really the currency you wanted to avoid. >> biggest loser. >> that's why you booked a trip there in february. >> right. >> when we come back, the retail season wrapping up as 2016 comes to a close. we'll discuss the state of the consumer and challenges ahead for retailers. quick look at futures as we go to break, held high by 41 points

on the dow. more "squawk on the street" from post nine at the new york stock exchange when we return. h e g s? i'm stressed, tryi to figureut this complex trade so i broughtn my cfort pony. we cld get sport om tnkor in-chat you dond a mft ny. so whaabout my motivational met? in-apphat thinkorswim. so whaabout monly atdmeritre.et? ♪ ♪ t up t$2500 customer cash on select 2016 and 2017od t up t$25for the terms.sh on seurexus deale will your busiss be ready when growth ts itself? american expre open cardnhelpo, will your busiss be ready when gor fill orrself? antake on wheveromes

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it has been another tough year for retail, so what can the sector look forward to in 2017?

joining us with some picks is that retail analyst john kernan, adidas one of your top picks, you expect a repeat performance here? >> yeah, hi, sara. thanks for having me on. yeah, adidas remains one of our top picks. we think the stock eventually hit 165 this year. been a great performer, very good product cycle. they have a new incoming ceo with an eye for efficiency. this is a company that's long underearned its peers. we think overall you're going to see a big acceleration in earnings in the coming years. >> do you predict that it will continue to come at the expense of nike and under armour, both down double digits this year? >> yeah, we're market perform on both under armour and nike, we wouldn't own either stock. they are both losing shares to adidas. adidas has changed the's th aesc

of what's working in the sector. >> a lot of the retail names have ended up in the losing pile of the s&p 500, l brands is down there. are there any underperformers this year that you like for next year that have good turnarounds in place? >> most of the names that we like going into next year aren't really turnaround stories. you look at burlington stores or dick's sporting goods both benefitting from some of the strength in their respective categories. dick's in particular benefitting from the bankruptcy of sports authority. certainly benefitting in strength in off price retail. but we don't have a lot of turnaround ideas right now in retail, to be honest. the sector's been a big laggard the last -- pretty much since the election. i think the russell 2000 is up 11%, the s&p's up 6, retail sector down 2. the fear over i think the holiday season and some of the

rhetoric around deficits incoming administration has talked about. >> some decent international exposure for some of these names like adidas and nike. what's your outlook in terms of how the retailers -- the consumers, excuse me, are going to do internationally as compared to the u.s. next year? >> yeah, sure. international has been a source of strength for both i cover, whether it's nike, adidas, calvin klein or tommy hilfiger. most of the international businesses or brands i cover have been stronger than the results that come out of north america with the exception of adidas for north america one of their best growth geographies this year. top international play is to get adidas -- >> go ahead. >> john. i was going to ask you mentioned the overhang of this proposed border tax adjustment. how are you telling clients to sort of handicap what that's going to mean for retailers in general? >> yeah, sure. here at cowen we have a research

group we collaborate with. and the analyst on the topic i think said the overall probability getting implemented, but there will be a lot of talk of it come january 20th when trump enters office. a big deal for retailers in the whole sector because all they do is import all their product. so if you start taxing, whether it's 10%, 20%, at one point talking 35% tax thar, that is massivemassive ly diluted. >> sure. it's a big wild card. john, thank you for joining us on this final day to talk retail. john kernan, retail analyst at cowen. quick look at futures ten minutes before the open. modest positive implication, s&p 500 as mentioned will open just about at a 10% return, not including dividends at these levels. art cashin is going to be ahead

talking the last trading day of the year coming up next on "squawk on the street." what's critical thinki lik a baskball cos $14. what's team spirit worth?ik (cheers) whwhat's theal ofalk to you? a walk in the ods?

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maybe you were lucky enough to own one of these names. i don't get that waste management number at the top there. i'm going with santoli on that one later check the veracity of that. >> might have noticed that before the last trading day of the year, i'm not sure. >> yeah, but look at the u.s., nvidia, we talked a lot about that, a lot more coming moments away. stay with us on "squawk on the street."

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you're watching cnbc "squawk on the street" live from the financial capital of the world. the opening bell going to be ringing about two and a half minutes from now. >> let's bring in art cashin, director of floor operations with ubs. art, it's been a bit of profit taking this final week of the

year. what in your eyes has driven that? >> well, i think there's been a couple of things. you've had some currency swings and people are adapting to that. for weeks we've been told that the pension funds will have to readapt their portfolios. i hope they're not going to try and do it in a big way today. the market's going to be very thin. >> uh-huh. >> and that would lead to a very disproportionate move. >> you mentioned the low volumes just there, as we come back after the new year and volumes pick up, do you feel like this profit taking's going to continue or there are strong support for the market where we are at the moment? >> well, initially you would think a new year, a new month, there would be new money to be invested, but what's happening down in washington has thrown a bit of a curve ball into this. we'll see how the hearings go for the nominees. how much of mr. trump's policies do we think will be easily implemented and how not. so you'll have new money for the new month but there will be

indecisiveness as we watch how the fallout goes. >> you were right about fed in 2017, that was correct, we only got the one rate increase in the last part of december. what do you think the street is looking at right now that seems maybe it's a bit crowded in terms of -- >> again, they're assuming that with the trump program, the lower taxes, et cetera, et cetera that the economy may begin to perk up. so they're buying into the three rate hikes. i'm not quite ready to do that yet. i still think this economy is somewhat weak. if as i suspect mr. trump's policies take longer to implement, then we're probably not going to see anything until very late in 2017, then the economy will struggle. >> and it's been a year of shocks from brexit to trump, a lot of people were wrong including market forecasters. what surprised you most this year?

>> well, i think the brexit vote i was unprepared for. but then i found a lot of people became much too dismissive. they said, oh, that went away. it became quiet because it's postponed. we have not felt brexit yet. it is still to come. >> you've made that point a number of times. art, thank you as always. >> my pleasure. >> art cashin, happy new year to you, too. you heard the opening bells there of course, you're watching the realtime exchange back at hq. we have more green on the board as futures would indicate. officials from u.s. marine and veteran organization team red, white and blue did the honors to honor the many veterans group that had gathered here to support our troops. over at the nasdaq, the times square alliance ahead of manhattan's times square new year's eve celebration. that tradition of course for them every year to ring that bell. well, here we are, final trading day, you heard art talk about he's mentioned a number of

times brexit, the lack of sort of concern about what may come. nothing's been triggered. >> harsh, right? >> yeah. i mean, where are we -- i know there's been some parliamentary debate, right, i guess about when it can or what's needed? >> interesting thing on brexit for equity markets of course is the foot see 100's end of the year upcoming off the back of two years of declines. it's benefitted from the weaker pound. but i think the important thing to note there is it's not really because exports have boomed. it's the translation effect of a lot of these companies whether they're b.p. shell or barclays who have a lot of foreign earnings. it's an accounting effect that's boosted those stocks. the economy has been better than people expected, but certainly not booming. that's something to watch. and i think, you know, politically across europe lots of risks for the next year. something like 42% of european gdp faces elections in the next 12 months. so, yeah, it's pretty relaxing at the moment. the dax, cac, all positive for the year, but certainly concerns and potential down sides to

come. >> supposed to pull the trigger on article 50 around march. >> yeah, exactly. >> which starts the two-year shot clock. >> as david suggested we've still got some court cases to get through, but either way there's pretty broad consensus that article 50 gets triggered in one way or another but before the end of the first quarter. >> what's interesting the market reaction both to brexit and to trump's election, you wonder if it makes people feel as if, you know, fourth of juinancial mark somehow inas a ruvulnerablas ai political shocks -- >> did you guys read george soros latest, the eu on the verge of breakdown and set to undergo an experience similar to that of the soviet union in the early '90s. >> he's been very bearish on the future of the eu for quite some time. >> yes, he has. >> i think you bring up an interesting point. if you look at a year as whole, france and germany endsing in positive territory, 4% and 6% respectively, of which 9% came

in the final quarter because the euro weakened. so i think performance has been flattened by the stronger dollar in the fourth quarter and you've got italy and spain, for example, in negative territory for the year as a whole highlighting those different political stories arjd this. so there's definitely a lot of threat. and i think u.s. markets have rallied strongly of course since the brexit vote because there was no immediate financial contagion. if you did get a eurozone country leaving or big political shocks in france or germany where we've got elections next year, that could be a bigger issue for markets. not base case expectation but more contagion for that. >> that will be the real test of political shock resilience. when you're talking about the big trades that worked and didn't work, you've got to mention commodities. oil really is the star performer of the year. wti up 45%. energy by far the best performing sector in the s&p. this comes after two down years for oil and still got a long way to go to get back to the highs. but there's hope and optimism. we saw an opec deal to cut production this year for the first time in years. and if you go through the s&p

sup sectors, best performing one is metals and mining. and in the top three best performing stocks of the year, freeport-mcmoran. this came to symbolize the collapse of oil and copper and -- >> emerging markets. >> and emerging markets. >> and too strong dollar. >> i mean, that stock has a long way to go to get back to even 2014 highs. >> it does. >> but it signals strength. >> carl icahn a great deal and has a deal of board members there, but given at the time we thought they were in grave danger. >> what'd we think of glencore ten months ago? so you had this reflation trade helped on that front. what's interesting going into next year presumably these forces become an inflation story and you have markets that really haven't been used to worrying about inflation risk. maybe we're in a zone where it's actually positive as inflation expectations go up. but that's one of those elements that has been new to this -- will have been new to this cycle

if we see that next year. >> just around some of those commodity points interesting for gold in the quarter we all know in the face of a stronger dollar very negative, for the year as a whole gold is up 7.5%. so over the course of the year it's actually performed pretty well. and as you say, will we get inflation next year? that's positive for gold. >> i would look at a five-year chart of gold and it looks firmly like a bear market bounce is what's going on right here. so, i mean, you could also take the other side and say, look, if gold couldn't rally more strongly with negative rates, central bank experimentation all year, what's going to take it higher? there's a push/pull on that. >> when you hear that applause building, given who rang the bell today, we assume there are members of the military on the floor. and there they are. getting well deserved applause. [ applause ] as they visit with us on this final trading day of the year.

[ applause ] >> tradition. >> yes. >> do they do it again? okay. you know more than i do if it's a double header on that. >> i think in the 11:00 hour. but just on this point about the winning sectors and gains from commodities, i would also mention that it really drew a line between the winners and losers in terms of countries, markets and currencies and bonds. some of the best performers, russia, brazil, norway, canada, all of the oil producing and commodity producing nations that got beat up so hard over the last few years. >> coming into this year you had global industrial recession, you had the dollar too strong squeezing all these economies and you had just the reversal of that and too many stocks priced basically to go away. >> and if you look at the fourth quarter as well, you can see what wins around the world from the stronger dollar or not.

the likes of germany, france, japan, developed markets all doing very well in the fourth quarter because they benefit from the weaker currency whereas some of those emerging markets on the riskier end they've suffered. that's something to watch around the world as we go. just in your point, mike, a moment ago, about inflation, of course people are optimistic that we're going to get the right sort of inflation supported by growth picking up as well. a lot of people mention do we get the stagflation type of environment where inflation picks up because we're near full employment and we've had this printing of money for many years. >> and trade barriers and whatever else might come along. >> exactly. but growth doesn't pick up sufficiently and then very suddenly these rate hikes we're expecting and would be warranted in the face of higher inflation they become a very negative thing for equity markets. that's something we've got to keep an eye on. >> not too many individual stocks to keep an eye on as we've said earlier in the week. not a lot of corporate news as you might expect. one thing to watch as we head into this holiday weekend and for tuesday, our own parent company comcast and charter, the

large cable company in a potential dispute here about carriage where if you are a charter subscriber, you may no longer be able to get your nbcu networks including the nbc network as of january 1st. does appear that there's a bis of a dispute there over contract terms. saying charter's been unyielding in its demand to terms superior agreed to those in the rest of the industry, again, our parent company comcast owner of nbcu. it's usually on the other side of the negotiating table in these kinds of things, but in this case it is actually nbc negotiating with the distributor charter. big sunday night football game that may not be available, packers versus the lions playoff rankings at stake here. say again? >> look at year-to-date p performan performance, up 40%. >> yes, charter has had a strong year, starting to buy back a lot of stock and our own parent has had a very good year as well. let's get to bob pisani for

more on what's moving this morning. bob. >> good morning, david. and happy new year everybody. financials, technology stocks fractionally on the upside, but let's not worry about that. let's look at the most important topic which is how are we going to do in 2017? and what kind of earnings might we have? particularly on the banks. once again bank stocks have been the leader this quarter overall here. tony was here from pimco just the other day and i said back in the envelope calculation tell me how much you think we'll get from an earnings boost in 2017 and here's his estimates. estimates a steepening of the yield curve see a 15% to 20% increase in earnings. tax cuts will see another 15% to 20%. less regulation another 5%. add all together, total potential earnings boost in 2017 for the banks, 35% to 45%. that is quite significant. it would certainly justify higher prices. here's the problem we're having, take a look at the kbe, this is the bank etf, the conglomeration of all the large banks, it's already up 25% since the

election. now, the argument amongst the bulls, the optimists, is they should have a multiple expansion. and it's true. they're not that expensive. most of the banks 12 to 15 times forward earnings. you could argue they should have a multiple expansion. that's where the debate is right now. but you get the point, a lot of potential but a lot of price run-ups already. let's look at 2016 quick. etf business, in the etf business there's 2,000 etfs, most of them do not matter. you want to follow the money, don't follow the etfs. the top ten etfs have 28% of all the assets under management, the top 25 have 44%. so you want to look in that top 25 or 30 to see where people's money are. here's the top stock etfs and how they did in 2016 -- excuse me, ishares, small caps, best performing up 20%. vanguard total stock, that's the whole stock market, up 11%. emerging markets we talk about how they didn't perform as well and particularly in the fourth quarter, powershares qqq a bit of a surprise, we thought it was

going to do better earlier in the year. they didn't. and there's eafe, europe, the dramatic underperformer, biggest etf for foreign stocks, that's on the downside. for bond etfs another good year for high yield. andemember high yield tends to follow the stock market a little bit more than even the bond market. inflation protected bonds, tips, did fairly well. this is not including dividends. corporates 2.6% very respectable for the lqd. total bond, that's the whole stock market, mixes of everything, basically flat in short-term bonds basically flat. here's the way to look at this properly. if you had a balanced portfolio, exactly 50% of your money in the biggest stock etf and 50% in the biggest bond etf, the agg, which is sort of a mix of everything, look at the outperformance here, 10% on the stock etf, 0% on the bond etf and almost all of this outperformance, almost all of it, came from the dramatic moves in the fourth quarter we were up 4% or 5% in the spy and down 4%

or 5% in the agg. quite a difference there for the year here. 2,000 etfs and we're getting another one even today, here's kevin o'leary's o' shares small cap launching today adding to the list. we'll get a lot more in 2017. finally, for everybody reading 2017 predictions just remember how wrong all the predictions have been on the biggest consensus stories of the year. remember the january, february stock plunge, recession coming, wrong, wrong on brexit, wrong on the election. those of us who write these should be a lot more humble, those who read it, should be a lot more cautious. guys, back to you. >> all right, bob, thank you. >> bob, thanks very much. it's been an exciting year for m&a. we'll bring you the top deals and mergers to watch out for in the new year. and then later former u.s. ambassador to russia alexander will join us as president obama issues sanctions on that country. the infamomo traitor. and i know a thiwo about t.

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let's head right out to the bond pits. rick santelli at the cme group in chicago. good morning, rick. >> good morning and thank you. let's go right to breaking news story, chicago pmi, the last data point of 2016, a december

read, 54.6. that's definitely on the light side, looking for a number closer to 57. our last look was 57.6. we open the year at 55.6, so a little bit less. an easy comp, we were lower in october at 50.6. the low read for the year 47.6. we did have two reads under 50. so, you know, a little less than unchanged in terms of where we finished off for chicago pmi. good-bye data for 2016. now, let's go to the real stories here. let's look at all year-to-date charts so fascinating, especially on a year where another december found a tightening. there were many who said an ease before tightening, they were not correct. it's the second one, may not be enough, but it's in the right direction. two-year note settled the year last year at 1.05, currently at 1.21. up 16. five-years, 1.95 close. so they're up 19, hovering -- excuse me, 1.76, they're now

1.95 up 19. tens are up an even 20 basis points. keep that one off to the side. you'll see why in a minute. year-to-date of 30s, now, this is a shocker. only up 6. only up 6 basis points, 3.02 settle, 3.08 last. the reason i wanted you to remember that is tens minus bunds, unbelievable. look at this chart. it settled the year at 1.64, 1.63. now it's well over 2.25. so it's up 63 basis points. but here's the key, if it's up 63 and tens are up 20, that means the bund underperformed by 43 basis points. finally, the dollar index. giving it up big time, but still even as it sits it's up 3.23 cents on the year, and it's up a whole lot more from the bottom. sara, back to you. >> yeah, up four years in a row. rick, thank you. rick santelli. oil weaker on the day, much stronger on the year. let's get to jackie deangelis at

the energy desk. >> good morning, sara. the whole energy complex had a nice run the last couple of days, so some profit taking isn't surprising here. but crude oil holding over $53 a barrel. we tested critical $54 levels and traders are much more optimistic than they were last year about this trade. remember in february we dropped all the way down to $26 a barrel. we have seen year-to-date nearly a 50% run in crude oil prices. and they think it's going to get better next year because we have a shorter period now to get to the season where demand starts to boost up and crude prices could see maybe $60, $65. when you think about the rest of the commodities complex as well, i want to point out some of the winners. looking down my screen this morning year-to-date you could see everything was pretty much in the green except for some of the ags that had a rough year for various reasons, weather, et cetera. but gold prices they're going to manage to log a positive year, about a 10% increase, and copper a 16% increase. everyone watches copper for global growth. back to you.

>> thank you very much, jackie deangelis. coming up, we're going to talk about the year in m&a, of course which you should be keeping an eye on which you perhaps did and should be for the year ahead. "squawk on the street" will be right back. by the way, we did fix the s&p winners as you see waste management is gone. only up 32%, nvidia in first place.

well, merger and acquisition activity was fairly robust in 2016, but not quite at the level that we saw in the record 2015. still a good number of deals to get investors' hearts pumping faster if they woke up in the morning and saw a company they owned being acquired. there's a look though, down 18%. again, off of what was that record in 2015 with a lot of the megadeals that we saw. but '16 also characterized by some interesting cross border activity, and certainly one has to wonder in an america-first trump administration will we see china be able to continue to have outbound volume hitting a record, for example, in terms of purchases here in the u.s.? will we continue to see u.s.

inbound volume overall hit that number? or are there going to be more protectionist policies put in place that even apply to cross border deals when you're dealing with american companies being acquired by foreign companies? certainly a question as we head into the next year. as for this year, well, you all know the biggest megadeal of course it was -- came towards the end of the year, at&t's decision to acquire time warner in a deal worth $108 a share or roughly $108 billion, monsanto -- monsanto-bayer, one of those names we might have been talking about there. a huge cross border, monsanto after trying of course to actually enter the consolidation fray as a buyer in the case of s being bought by chem china, internet of things certainly a theme we'll continue to hear about in 2017.

qualcomm stock acted very positively. again, all about the internet of things. finally, we're still waiting to hear reynolds and b.a.t. what will b.a.t. raise its bid to try to get that $58 billion plus deal done is still a question as we head into 2017. also some big deals fell apart during the course of the year. none bigger than allergan and pfizer. remember that? the u.s. treasury saying we have devised new inversion regulations basically pinpointed to stop this transaction. and they did just that. baker hughes, halliburton of course antitrust a big theme over the course of this last year. it showed its fangs in the case of baker hughes and halliburton and office depot, staples, williams, ete, that fell apart because the industry basically fell apart. those were some of the bigger deals that did not make it to

the finish line. also some failed bear hugs. it is not easy to get a hostile deal done, united technologies and honeywell of course was one of my favorites because i broke it, but didn't happen. honeywell tried for weeks, famous interview of course with the ceo of united technologies greg hayes saying ain't going to happen. mondelez and hershey, that didn't happen as well, sara's favorite. but what about next year? what about the animal spirits we've seen? what about the confidence of ceos in a less regulatory invasive environment? listen to a guest i had a couple weeks ago runs investment banking at goldman sachs. >> the forces of consolidation in many of these industries a are -- in some cases integrating growth and opportunity to expand whether it's overseas or deepening penetration in certain markets. so those forces to me are

continuing to move forward. now i think ceos and boards are starting to feel more offensive minded and thinking about the opportunity to be more on the front foot if we get a bigger growth opportunity, we get tax reform, we get infrastructure spending package passed in washington, you may see a more offensive mindset. >> could be a year for very big deals with the belief of course that an antitrust administration under trump will be more forgiving. but we don't know. there's populism mixed in there and that could rear its head in certain ways. >> also job losses mixed in there. >> well, that's exactly right. yeah. >> could also see a wave of cash come back in, which won't necessarily mean a lasting boost in m&a throughout his presidency, but could see a big boost in year one for example if that cash comes back in held offshore. >> no doubt. that could aid companies' ability to -- >> i'd be curious about that though, david. effectively paying perhaps a 10% cash to repatriate the cash. that's your cost of doing this deal. big companies right now have not been hindered by lack of access to cheap cash. >> they have not. in fact oftentimes even though

they have the cash overseas they simply borrow against it to a certain extent. you're right. the debt market's had a record year by the way when you talk about investment banking overall. debt issuance at $6.7 trillion. but given the potential of the lack of deductibility of interest as part of a tax reform package, not to mention what you just did with the money coming back, don't expect to see debt issuance at a high next year. >> the other point as welcoming back to your interview with john waldron with goldman sachs, he was very positive on the outlook for ipos, more so for m&a because that has been lagging. >> report, lack of predictions. dow's down 24 points. more "squawk on the street," we'll make david make a prediction. stay with us. where,n all ofhis, thethe sur finances,h, your fute. thethow do y sve this? u don't. you paner wi a fatadses govers the foune 500,

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but you feel coident arou torld.menay b experien.. call us or your visor... t.e pricld.menay b experien.. invest with co. ♪ good morning and welcome back to "squawk on the street." i'm david faber along with sara eisen and wilfred frost. we are live from the new york stock exchange. carl has today off. let's give you a look at the markets right now of course. we have turned on the broader markets after the futures showed an up open. and we had it, we have decidedly moved into negative territory s&p down about a quarter of a

percentage point. our roadmap for the hour begins with russian retaliation, moscow deciding not to expel 35 diplomats in response to u.s. sanctions. what does it all mean for the markets, investors and multinational companies? >> it's final trading day of the year after two down days for the dow, what's it going to take to get the trump rally rolling again? jim stewart's here to talk about what to expect in 2017. and happy new year, the president of the times square alliance will tell us what security provisions will be in place for the celebration in new york city on saturday night. first though, john harwood has more on what has been a top story this morning, namely russia's response to those u.s. sanctions issued yesterday. john. >> david, the russian government allowed a little bit of suspense to play out this morning. foreign minister lavrov came out and said he had recommended the expulsion of 35 u.s. diplomats from russia, the closing of two facilities to match what we had

done to russian diplomats here in the united states and those facilities in new york and the maryland eastern shore. but then vladimir putin came out and said, no, not going to do that, not going to have tit-for-tat kitchen diplomacy and that points to a big bet on the american transition of power. >> it's unusual. usually in one of these instances there's a tit-for-tat response, and even foreign minister lavrov already had put together the names of diplomats to expel. but obviously president putin has decided he's going to wait and deal with the next guy. in just a matter of weeks. so this is different. he's putting his bets on president trump. >> now, it would seem a pretty safe bet for vladimir putin to make on president-elect trump given that president-elect trump has not embraced the conclusions of the intelligence community that russia was responsible for that election hack. but he's getting rising pressure from republicans in congress.

lindsey graham, john mccain saying yesterday they're going to seek even stronger sanctions, how this plays out if there is an independent congressional bipartisan investigation is a big question mark looming over the trump presidency, which will begin in just three weeks, guys. >> so, john, the president-elect trump says he's going to be talking to intelligence services, that was a bit of a shift in terms of his response to all of this. hasn't he already been getting intelligence briefings and finding out information about this as the president-elect? >> one would think so. but he plainly hasn't been terribly interested in pursuing that issue. he has consistently said favorable things about vladimir putin, expressed his desire for stronger relations. even in the statement that he put out last night, sara, he did not even mention russia. and he expressed a certain reluctance. he said i think we should move on, nevertheless i will meet with the intelligence agencies next week.

he is not into this issue. vladimir putin is hoping that it goes away. question is whether congress, democrats and republicans allow it to go away. >> and, john, how typical is it to get such foreign policy action like this from an outgoing president so late in his final weeks in office? and the assumption is of course that president obama and president-elect trump did not discuss this at all before it happened, is that right? >> we do not know whether or not they discussed it or not. we'll ask that on the transition call this morning. but it's not unusual for presidents on the way out to try to get things accomplished in foreign policy. we all remember the end of bill clinton's administration. he tried to forge a middle east peace agreement. couldn't do it. so this is a response to a very specific russian provocation, that is the interference in our elections. and i think it is in fact a criticism that obama got yesterday was that this was overdue, he should have done it

sooner. >> right. and, john, finally, you mentioned this, mccain, lindsey graham, mcconnell, how important are they going to be in terms of how the trump administration does follow through or not on what occurred yesterday? >> very important. first of all, all those votes of republicans are going to be needed to confirm nominees like rex tillerson as secretary of state. rex tillerson's somebody who's received the order of friendship from vladimir putin in russia, and that's going to be a subject of questioning. but any resistance you get from within your own party, especially with a senate narrowly divided is very consequential and has an impact. >> john, thank you very much. john harwood for us in washington. let's get more on the possible market impact from these sanctions and also previews for the year ahead of course in the last trading day of 2016. there's some market moves for you before we have the discussion. all three major indices up more than 8%. but the breakout star has been the russell 2000, which is currently up more than 20% for the year. we're joined now by samantha,

global market strategist from j.p. morgan funds and john sylvia, chief economist at wells fargo securities. good morning to you both. samantha, i'll start with you quickly on the story we just had, from the rally we've had, is geopolitical risk in the year ahead underpriced at the moment? >> i don't think so. because at the beginning of the year the equity market was pricing in the worst case scenario with respect to g geopolitics with china and u.s. recession. now at the end of the year i think the market's pricing in the best case scenario with respect to a trump presidency. and geopolitical risk is back on the table. we know this. and i think the market has great expectations for 2017. and i'm not sure if they're going to come through. >> so you do think the market run up recently is a bit overdone? >> we think it's a bit overdone. there's a lot of reasons to feel really good about the u.s. economy and u.s. equity market. look at earnings recovery, growth and inflation, that being said the run-up you've seen especially in certain sectors regulation heavy we think could be a little overdone. we have to wait and see and it's

too early to tell. >> john, when we look at some of the market moves we've seen this year, one of course is the dollar's u.s. strength up about 4.5% against a broad basket of currencies and up much more than that in the fourth quarter. is that something that could derail the equity market rally for you, or is 4% move for you as a whole something equity markets can stomach? >> i think the equity market can stomach as long as there's a sense that there's good solid global growth going on. but clearly a stronger dollar makes it more difficult for u.s. exporters. that impacts our trade deficit. and as you know some people in the incoming trump administration have made the trade deficit a marker that they want to improve. so there is that challenge right there. >> so, john, does that increase the risk that the inflation that market expects next year is going to be bad inflation, sort of stagflation type as opposed to based on steady increase in growth? >> well, clearly the stronger dollar does lower import prices, but they're not all that significant. it really is labor cost that

drives the inflation numbers. i think we're looking at decent economic growth at around 2% or so. but i'll go back to samantha's point. you know, since the election i think trump has had his first date with the american public and the markets. now the first date's over. everybody's happy and now we're on to the second date. and the second date really starts to tell what can you actually produce in terms of tax cuts and infrastructure spending. >> samantha, in terms of sector performance, where are there still second date opportunities, using john's term? >> well, i think if you look at the sectors that have rallied the most at the end of the year, it's energy and it's financials, which we know are going to benefit from proposed regulation changes. same with health care on the other side. but is the worst performing. i think you have to come back to the fact that the u.s. expansion is going to continue. if you think it's going to continue, you have a bias, two cyclicals over defenses, we have a bias to fixed equities if we are in this reflation scenario. i would add the trump trade is

really just hyperactive celebrated version of the reflation trade which all the groundwork was being laid for that pre-election. we're just getting the extra boost i think from the regulation cuts. >> what are you forecasting for growth next year, john? >> about 2.25% overall economic growth. good american consumer, some recovery in business, but once again, sara, a negative impact on net exports in terms of overall u.s. economic growth. >> and then what's your forecast for 2018? because there's this narrative out there that the real fiscal stimulative policies like tax cuts and infrastructure spend won't start to boost the economy until then. and that's why the market potentially is justified at these high valuations. where do you come down on your forecast then? >> well, i would agree with you, more like 2.5% to 3%, sara. i think a real impact of all these changes is going to take place mostly in 2018. but let's go back to a point you made earlier with david. populism. mergers and acquisitions, infrastructure spending, tax cuts, they're all going to face

this populist framework for making a limit perhaps on how extensive any of these changes really can come out. >> samantha, around the rest of the world which equity markets do you like for 2017? >> we actually have a bias to emerging markets. we think they're coming out of the bottom of their recessions and their earnings are starting to recover. now there's headwinds obviously from the dollar, and if the fed starts to move quicker, but the domestic story in e.m. is really there. it's just if the external end headwinds align properly. >> samantha, thank you very much for joining us this morning. john, also thank you very much to you. >> thank you. when we come back, the big story of the day, russia's foreign minister calling for measures to counter u.s. sanctions by expelling 35 u.s. diplomats from moscow. vladimir putin deciding against that for now. we'll talk about what comes next in this relationship with the former u.s. ambassador to russia as well as a former deputy national security advisor when "squawk on the street" comes right back, losing a bit of steam here with the dow down about 23 points. nehing]

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president obama imposing sanctions against russia for interference in the november elections. joining us now former nato deputy secretary general and former u.s. ambassador to russia alexander vershbow and james jeffrey, former ambassador to turkey and iraq as well as deputy national security advisor. ambassador jeffrey, let me begin with you, do you think these sanctions were justified? >> certainly the sanctions on

russia were justified by every account we've had from the intelligence community and lots of other evidence that people who know how the russians work have documented, yes. they definitely -- was justified. >> do you think they should remain in place under a trump administration? >> well, it's a one-shot thing. what happens is when you throw out diplomats, new ones will come in and replace them. two offsite houses may go away, but the russians are find ways to compensate. this is a one-time thing, but a pretty dramatic one. >> ambassador vershbow, put this in perspective for us. how significant is this in terms of the long relationship between russia and the united states? >> this is quite a significant move by the administration. and i agree that it's totally justified. because the russians have based on the evidence we have and i think the intelligence will

further confirm that, they've brazenly interfered in our domestic political process and it deserved a response. but i think the other thing to remember is this is only one element in a broader pattern of provocative behavior by putin's russia over the last couple of years. the sanctions that really are biting are the ones that were imposed because of their aggression against ukraine. and i would hope that the new administration would proceed cautiously before removing those sanctions or easing those sanctions because russia hasn't taken a single step to end its aggression against ukraine. >> there are also beyond the sanctions themselves there's also been statements that we would potentially increase or do something to respond in the cyber world to the russian incursions. is there a chance that this escalates to a point where it becomes even more dangerous? >> there is indeed a risk that the relationship, which is already in its most dangerous place in decades, could get even

more unstable. so no one is suggesting that we get into an endless tit-for-tat here. but this was a very flagrant act by russia and deserves a strong response. i think the administration also needs to consult closely with the congress and with its allies before taking any unilateral steps after it kicks off on the 20th of january. >> ambassador jeffrey, do you agree with some people's comments overnight that this is too little too late for president obama overall in his dealings with russia over the course of his eight years? how do you rate the obama foreign policy? >> two separate questions. the sanctions obama was in a tough place during the election campaign. i think he did the right thing waiting. and i think this is the right level of retaliation. i doubt if he'll do a whole lot in the cyber world, then you get retaliation. plus the really good stuff we can do, we don't want to let the russians know. the more general je again as

ambassador vershbow said, russia has been running -- be it in ukraine, territory crimea in the middle east the last few years the obama administration in various ways has enabled this by action or inaction apart from the sanctions. and the cherry on top of the sundae is the putin interference in our election that may or may not have helped the person more friendly to him become elected. he's doing a victory lap. he doesn't have to do tit-for-tat sanctions on us. putin has won across the board. >> ambassador vershbow, when we look at europe and particularly the eastern europe, baltic states, there's some fear for those countries ahead of president-elect trump taking office that they might be left for president putin to take what he wants from them. do you understand that fear, are you worried about the trump presidency in that respect for

example to things like nato? >> yeah, no, that fear is quite real. and it's quite justified in my view. and i experienced it every day before i left nato last month. we can't be completely sure that russia with its impressive military build up and the kinds of semicovert action that it used against ukraine that it wouldn't try something against astonia or lithuania, we have to remain strong defense in deterrence. and i think in this respect the obama administration has done a good job in helping nato adapt to the much more threatening environment we've seen since the annexation of crimea and the aggression against eastern ukraine. >> ambassador jeffery, i'm curious as to what your expectations are for the incoming administration. you said putin has won across the board. president-elect trump has made it clear he's not yet even willing to believe that the russians hacked or had an

influence on our election. what can we expect here in your opinion from the incoming administration based at least on what we know about the potential appointments he's made? >> you've posed the $64 those question. if donald trump wants to make america great again, let me tell you you cannot make america great again without the international order that is identified with america in that america and our citizens have benefitted from, peace, prosperity in every respect since world war ii. and the main threat to that right now is putin's russia. so trump is going to have to deal with that. how he deals with that we don't know. the selections he's made -- i know rex tillerson. i know general mattis, i know general kelly. we couldn't have better individuals going in there. they're realistic, but in the end trump makes foreign policy and makes relations with russia, not these folks. i'm pretty sure i know where they'll come down on some of the issues, but what will be important is what mr. trump

decides. >> and ambassador vershbow, what are your expectations for the incoming administration certainly given what happened yesterday? >> well, again, tremendous uncertainty further fueled by the unwillingness for the president-elect to acknowledge the full scope of the hacking and what it represents. and i would agree with ambassador jeffery that maintaining the international order is ultimately essential for the united states. it's worked for decades since the end of world war ii. but right now we have a russia that is breaking all the rules that wants to make up its own rules. and that's ultimately not going to be a basis for a long-term relationship with russia. we certainly need to improve relations with russia, but it should be based on principle, based on insisting russians end aggression against their neighbors and end hacking of our elections and the elections our european allies, which poses immediate threat on the horizon as we look to 2017. >> it is, indeed.

thank you gentlemen both for your insights this morning. up next on the show, much more on where the market and oil is headed in the new year. and then later, we'll talk to the president of the times square alliance on what to expect in midtown manhattan this new year's eve, tomorrow night. in the meantime the dow laggards for 2016 on your screen. nike by far the biggest loser down almost 19%. les per ur. is traving over to win, evmiisecon tts. both on e track and thousands mileswa th the help oft&t, redull racing can sha critica rmation abt evy inch of the r om virally anywre undetobrake as back olr br ic. vinghethagility toave speed & prion. bee one kno &ike at&t

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the trading year ends today. cnbc's getting out the playbooks to look at how various sectors may fare once the calendar flips over to 2017. today jackie deangelis has a few predictions for commodities in the coming year. >> volatility was the name of the game in commodities this year. gold, oil and copper all saw massive swings. next year it looks like that will continue because there are so many unknowns. gold prices will move lower. gold prices will continue to move on fed action. a dovish fed has been supportive of gold, a hawkish fed that

hikes rates is not. the fed's actions also impact the dollar, which in turn impacts gold. so with fed change coming, the expectation is that gold prices will not fair well. crude prices will move higher. crude oil saw massive swings this year. it's expected to slowly climb higher and stabilize next year. the range is expected to be between 60 and 70, but that stabilization hinges on supply decreasing and demand rising. there are a number of caveats that could throw that equation off. crude has shocked the market the last two years. it's not impossible for it to strike again. copper prices seesaw. copper of course is eyed as an indicator for global growth. demand for the industrial metal tends to speak to global growth trends, specifically in places like china. copper will continue to be in focus, but expect prices to bounce around. data, headlines, the fed, these will all influence this hot commodity. and that's what we're expecting for commodities next year.

but it certainly was a banner year this year. take a look at some of these year-to-date charts. some of the performance that we've seen. gold saw a movement of about 10%, crude oil year-to-date 45%, we hit that low of near $26 back in february. and copper prices were up 18%. so what to expect next year, guys, well of course there are many unknowns because of the incoming administration, we're looking to global growth trends as well. that will impact commodities. and we have to watch that dollar. not impacting crude so far, but certainly will take its toll if it continues to rise. david. >> all right, thank you very much, jackie. sara's smiling whenever she hears watching that dollar gets her attention. >> no, i was going to ask you for m&a predictions? >> oh, now we're going to do this? >> we asked jackie hers. >> we have to tease what's coming up next. go to break here, quick check on the markets. we did turn. we had been positive earlier in the session. now down almost a third of a

percent. we're going to talk to pultser prize winning columnistcolumnis stewart.

good morning everybody. i'm bill griffeth. here's your cnbc news update this hour. a violent encounter at a west bank check point today. israeli police say the security forces shot and injured a woman after she tried to carry out a stabbing attack. she is accused of failing to drop a knife when ordered to do so. a human rights group is reporting syrian government war planes are carrying out air strikes today in northern hama, the syrian observatory for human rights. the british backed group did not immediately report any casualties. this would be the latest violence to interrupt the russian-turkish backed cease-fire in that region. unusually dense fog creating treacherous driving conditions across the uk today. a bus overturned in england

injuring 16 passengers and the driver and flight aware reports the heavy fog is also delaying several hundred flights at hethrow airport. nearly a foot of snow in some parts of new england today, rain, damaging winds and rare thunder snow. all affecting maine, new hampshire and vermont. that's your cnbc news update this hour. happy new year to you, sara, and david, and wilf and the whole gang. >> happy new year, bill. it's been fun having you this week here. bill griffeth. let's get back to that big geopolitical news. russia's president vladimir putin saying he will not expel any diplomats in response to u.s. sanctions announced last night. nbc news pentagon reporter hans nichols joins us now. hans, welcome to the show. >> sara, i'd just gotten off the phone with a u.s. official and that u.s. official said what a lot of us here said they were

surprised vladimir putin did not decide to retaliate and expel u.s. officials or spies that are working in russia in retaliation for the 35 that are being sent home. a little about the 35, the russian foreign ministry put out a picture of a jet they are sending. they're sending a jet from moscow to pick up what the u.s. is very clearly calling in diplomatic language spies, people working in ways that aren't consistent with counselor or diplomatic functions. we have an escalation from the obama administration, but a very clear move by vladimir putin, after setting this up as though he was going to retaliate, not to retaliate. vladimir putin is playing out the clock here appears to be waiting for january 20th when there's a new president that's going to be coming to town. one thing we don't know yet, what is the fate of that maryland compound? sara, i think you and i should try our hands at a little real estate and try to renovate. it's got some apartments, got a lot of potential. the basement of that one worries

me a little bit. look at that water table there, you could have to install a few sump pumps, something i know a little too much about, sara. >> wow, hans, deal accepted, challenge accepted, i guess. that sounds like a good bet, i didn't know it existed. >> we just need a couple million dollars and down payment. rolling apartments, offer tours, close access, nice beach, cr crabbing, it's nice. >> might be some nice vodka left there somewhere in a cupboard. >> find the caviar, you go for the vodka, i'll go for the caviar. >> that's a makeover dream. hans, thank you. after flirting with 20,000, the dow now well over 100 points away but still up 14 percentage points for the year. many investors are wonder whag a full year of a trump presidency will actually bring to the markets in 2017. that is the question du jour.

and joining us pulitzer prize winning columnist jim stewart joining us. >> thank you. >> stock predictions coming out for next year, trump a big wild card when it comes to policies. what's your biggest question? >> well, you know, i think we do have to accept the fact that we're going to be living with more uncertainty. which, you know, stock market investors seem to have forgotten that since the election. they seem very sure we're going to get stimulus, we're going to get infrastructure spending, we're going to get tax reform. my own sense about this is first of all, i keep getting bombarded with questions from people that like trump that say is it too late to get in who don't like trump say i'm selling everything. my constant advice is we don't know what's going to happen next year, so stick to your plan. rebalance if necessary, this is no time to make wild bets based on political expectations. but that said i think stocks we're going to get some resistance here. clearly we're not getting 20,000 as our stock market christmas present. everybody thinks we're going to

have three, maybe four rate hikes next year, everybody thinks the dollar's going to be stronger. i always get worried when there's so much consensus about something because i've recently been reviewing some of my year ahead columns over the last five years. what really stands out is how the smart people are almost always wrong. >> yes, but the whole idea of sticking to your plan didn't work after the election. i mean, the outlook completely changed. the fact we now have a republican sweep or republican controlled congress and potentially pro growth policies is totally different -- it's a game changer, isn't it? >> that was a game changer and i think that was reflected in this rally. people said is this some kind of bubble, i don't think so. i think there were legitimate reasons for investors to change expectations, but it wasn't bad. say you have a 70 stock, 30 bond allocati allocation, then you were fine.e you participated in that rally. it was the people right ahead of the election spending exorbitant sums of money to hedge against a trump victory. remember how expensive that was

to try to buy protection for that? >> yes. >> that was just a total waste of money. not only did -- was it expensive to do it, the market did the opposite of what everyone thought it was going to do. so i do think that confirmed sticking with a plan is a smart approach when there's a high level of uncertainty. >> you mentioned in reviewing your previous columns that the smartest people always seem to get it wrong. i mean, every year -- well, since really '09 it felt like we came in and everybody expected interest rates would rise. >> yes. >> in fact they went to new lows. not this year as we flirt with 2.5% on the ten-year. >> no. >> but again, this expectation of perhaps three or maybe four moves next year by the fed, are they going to prove wrong again? are we going to find ourselves in that same situation? >> well, look, the way to make money in the market is not to go with consensus. so let's assume that three or four is wrong. is it more likely we're going to have more rate increases or less? i think it's more likely that we're going to have less. you know, again, i look back at last year, nobody was

recommending oil at the beginning of last year. nobody was recommending commodities. did you see what those did this year? 50, 60, 80, 90% gains in some of those stocks. so that was an example of a contrarian play that really worked out. so what's the kind of equivalent thing right now? and i think it is to be a little more bullish on the bond front because people are very negative about that and then inflation. talk about 2009. we've been waiting for inflation now as long as i can remember. and every year it doesn't come. now everyone's saying, okay, we're going to get some inflation. so we don't get some inflation, some of the steam is going to go out of this commodity thing. >> one thing not predicted were brexit and donald trump's election victory. however, one thing we've learned from both is the market shrugged these wild unexpected political shocks pretty quickly. so as we look ahead to next year and the years ahead, is political risk actually something, whatever you expect on each election, something youk e you can ignore?

markets shrug both off very qui quickly. >> no, i don't think you can ignore it. the russia thing is a recent example. but i do think both brexit and trump are fascinating to me just as an observer because the experts, you know, big investors were doubly wrong. they were wrong about whether there would be a brexit and whether trump would win. and then they were wrong about how the markets would react if those things happened. so there are two strikes right there. i think that just shows how tif difficult it is to predict. but it's one thing to try to be predicting what political reality will be in the future, hazardous, another thing to react intelligently when something does happen. that's something we're going to have to be very alert to. i think history suggests that politi politics, economics, business markets are very closely entwined. if something catastrophic does happen on the political front, you can bet it's going to have impacts economically. >> do you buy this idea that having a businessman run this country, making deals, calling

ceos, appointing people in the cabinet from the executive boardroom is going to be a friendly pro-market, pro-growth type of policy? do you expect that to yield results? >> yes. i think we are going to see growth. i think it is pro-market, it is pro-business. it's tilting away from social engineering, it's tilting away from worrying about the safety net. i mean, you can argue about whether that is good or bad broadly for the country, but i think it is unquestionably good for investors and markets in that somewhat narrow sense. so we'll have to wait and see. but i do think there are going to be some bumps here. >> such as what? >> i mean, i've just watched in the media perspective like when a new editor comes in and tries to deal with washington bureaus, forget it. it's like washington is a little bit like the immune system. trump is the virus coming in and the immune system is going to kick in. it doesn't really have anything to do with ideology or party,

it's entrenched self-interest, little -- it's not going to be that easy. >> hasn't washington been in so in need of that kind of shakeup? >> yeah, but it's one thing for the voters out there to say we want a shakeup in washington. now the game is going to be in washington, in the proverbial beltway. and that is another world. good luck to trump there. i think he is going to deliver on pretty radical change. but it's not going to be that easy or that smooth. we're already seeing with this russia thing that the party, the republican party, is pushing back on a lot of what he claims that he wants to do with russia. it's not going to be that easy. he's only one person. >> it will be eventful. and we're glad you'll be here with us along the road. >> i'm glad. it will be fascinating to watch. >> happy new year, jim. >> happy new year to you. >> thank you for all your commentary. jim stewart of "new york times." >> let's head to break as we take a look at markets opened higher but now a bit lower. not significantly though.

slight declines at the moment. the dow down 0.1%. those are the winners year-to-date of the dow. some big ones there 36% for cat and united health. goldman sachs just behind that, chevron, j.p. morgan chase. coming up, elevation's co-partner roger mcnamee will join squawk to talk tech in 2017. stay with us. taneous moment? cialis for daily usereats ed and e urinary sytomsf bpll yourr abyo micines, keitrates for chpa,ar healthenough f f s. not teu do not drink aohn exce. avoidony lmary sion,as this mause an. for an ereion lastingmo tn four. ifou have a ddenrease losofeangvivion, or an allergiceactio stop taking al anget mecal heht awa ask yourocr abcial..

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♪ welcome back. let's get over to the cme group and join rick santelli for "the santelli exchange." rick. >> thank you. it's the final exchange of the year. kind of bittersweet, but nothing bittersweet about my guest tim cross. tim, thanks for taking the time. >> crickrick, good to see you. happy new year to you.

thank you. >> happy new year to you and all our listeners. you wrote something i find fascinating and many are thinking it. when they look at the markets, there's not a lot of big trump fans out there other than all the people who voted for him, they say, ahh. and you wrote, honeymoon before the wedding. i get it. i have a retort to that. okay. maybe it's just the party before the divorce papers are final. so my contention is we're underestimating the fact that we've had a really cool president with really uncool policies towards business, his administration in my opinion thinks as highly of free market business as they do about the b bubonic plague. give me your reasons why you believe you're right. >> well, rick, i'm with you, i would say this that the american economy for the past eight years has been a couch potato living on doritos and now the stock market has us all thinking that we're in the bowl championship

series vying for the title. and when you go from fat to lean, pain is involved. my concern is that we have an unrealistic expectation because the market today is a mass form of outcomes versus expectations. in fact, if you look at the stock market's performance and you consider the four big reasons that people buy and sell stocks, only one of them is rational. there are four things, one, people buy stocks for their unique characteristics. they buy them because they have characteristics that are similar to other stocks. they buy and sell them to profit on price differences, buy or sell to protect leverage of a portfolio or trade. only one of those is rational. by our measures 40% of market volume is a form of profiting on price differences. so if you have a market that is built on expectations versus outcomes, and we had a huge unexpected outcome in november, my concern is that the expectation may not match the outcome. >> you know, finally, tim, the

other issue i want to hit on is that the fed is going to make the dollar strong, and the dollar strong mostly is a negative thing. i completely disagree with that. i understand multinationals may have issues, but what about all the manufacturers, for example, who are now going to have more purchasing power from everything in the supply chain to make products? aren't there some big positives as well? finish it off for the year, buddy. >> well, absolutely. there's no question that a strong and stable currency is the platform for good economic opportunity. we know -- you and i know, we can look at the data and see every time the dollar strengthens what happens, productivity improves, because your money goes further. so that's the good news. the problem is that prices that are fostered by a weak dollar have to reset. where are those? everywhere. the challenge is, and i'll say this again, i am all for economic growth, but we will have to go through a period just as happened in the reagan years

in the first 18 months when we were getting back into economic fighting shape, it was pretty tough. we have to prepare just like athletes to go through a period of training. and you don't want to build on top of an economic platform of sand. you want to shovel that out of the way first so that expectations match outcomes. >> tim quast, thank you for your thoughts. i wish you a happy and prosperous '17. >> back at you. >> thank you, rick. to you as well. as we head to break here, take a look at shares of walmart and amazon. both in the news today. the company's facing accusations of copyright infringements by run dmc mcdaniels filing his report yesterday for reported $50 million. next, we'll talk to the president of the times square alliance, new york city security plans for tomorrow's big ball drop in midtown. more "squawk on the street" when we come right back. the dow is down about 26 points. l

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♪ sun is shining in the sky >> welcome back. over 2 million people expected to bring in the new year in times square raising security concerns for the city of new york. joining us is tim tompkins, president of the times square alliance. tim, a very good morning to you and an early happy new year. as we just mentioned, security fears a little elevated after what we've seen similar big events in nice and berlin over the course of the year. is there reason to be extra concerned ahead of the event? >> well, we live in a dangerous world so, that's something that's always a concern. what we know is that the nimd and the mayor and the whole administration are the most experience folks dealing with this kind of situation anywhere in the world. starting back in 2000 in the millennium when people thought there were going to be issues then, through all the subsequent years, we've had amazing security in times square for new year's eve. the nypd also deals with high-profile events like the

gathering of the security council of the u.n., where it's heads of state. we're confident they're on top of it. they're doing a great job as they do all the time. >> how many officers will be on patrol, tim? is it elevated from last year? >> no. i think we know from the police commissioner yesterday that it's about 7,000 officers. and they both have a perimeter approach with respect to vehicles where they're blocking the streets. they've done that in the past. i think they're taking it up a little bit more to have even more coverage. and it's kind of like getting into an airport or an airplane. they scan people, they tell them not to bring bags and that kind of thing. it's a very secure environment by the time you get into times square. >> tim, separate question but i know one you could probably answer. i feel like i've walked around new york city this week the only new yorker in new york city. tourists are everywhere, and in times square in particular, they just get in your way, they're all over the place, they're constantly stopping and creating pedestrian traffic. this is what we'll have to live with as new yorkers, i guess,

huh? >> you sound like a real new yorker, and the thing just to keep in mind -- >> like a whining new yorker. >> new yorkers don't whine. >> come on, man. >> keep in mind over the last 15 years the number of tourists coming in has basically doubled from 30 million to 60 million, and that is literally hundreds of thousands of jobs. we did a survey a few years ago, economic study and found that 1 no-in 10 jobs in new york city directly or indirectly is driven by times square. that money from tourists is free money. of course it crowds the sidewalks so new yorkers, as anyone is with any tourists, they're kind of protective of their territory. the fact is it drives jobs and is good for the economy. >> and tax revenues most importantly. you made me feel better. thank you. >> tim, any tips ahead of new year's eve, ahead of tonight that you've got for regulars? >> dress warm and come because you're going to have the most amazing experience of your life. you're going to see amazing

talent ranging from rachel platen to gloria estefan, live webcast, times square nyc, six hours of entertainment and it ends with secretary-general of the u.n., ban ki-moon, sending the signal to drop the ball because we're seconding a message about this is the globe coming together after a very divisive year. >> great stuff. david, up with quick question. am i considered a tourist or a new yorker? >> you're a new yorker. you're one of us now because you're actually here going somewhere as opposed to just wandering around looking at things. >> you should go to times square. >> although i take selfies and pictures. this is still a new city to me. it's exciting. >> by the way, times square, great, really fun. haven't been there in a long time but it is a world party. >> you could go now and start camping out in your sleeping bag so you can get a good spot. >> really. >> you can just walk down before and there were no barriers. the good old days. coming up, the year-end winners and losers for all of the major market indices.

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19 states are voting to raise the minimum wage in 2017. kalt has more back at hq. it's a big deal, kate. >> it was a banner year with about 12 million workers in these 19 states behind me and two dozen cities and counties ringing in the new year with a raise that will kick in on december 31st or january 1st. these 29 states and washington, d.c., have wages that are above the federal floor of $7.25 an hour. the wage increase is kicking in in the new year. don't change that number but many are significant. workers in arizona will get a raise of 24% from $8.05 to $10 while workers in washington state and in massachusetts, they'll have the highest minimum wages in the country at $11 an hour. the national employment law project said this is the most successful year for the fight for 15 since that movement launched about four years ago. major milestones in that time period include new york state, hitting $15 an hour by 2018 and california and washington, d.c., following suit by the year 2020.

both critics and supporters agree there's likely to be little movement at the federal level with donald trump in offense. he spoke out in support of a $10 an hour minimum wage on the campaign trail but with andy puzder as his labor nominee, an increase from $7.25 seems near impossible. >> a story we'll watch. kate rogers at headquarters. final look at markets on this final trading day of 2016. it is still a year set to see double-digit gains for the s&p and the dow. who would have thought with all the shocks and unpredicted events. >> absolutely. and also the dow is up some 9% for the quarter as a whole. a strong run. this final week of the year we've seen a bit of profit-taking, some money go back into bonds and the dollar rally slip a little bit but on volumes. question will be next week when volumes pick up again do we see those signs of selling continuing to pick up. >> we'll be watching crude oil. that's been an indicator of

strength this year. the mexican peso has been a reflection of the trade epps tensions, the vix for volatility index, many more. >> and the banks strong performer, the second best sector on the whole for the year having started so slowly like energy did as well. >> that'll do it for "squawk on the street." happy new year and best wishes for a happy and healthy one. kayla and "squawk alley." >> the same wish for you guys. happy new year to both of you. 7:00 p.m. in moscow, 11:00 a.m. on wall street, and "squawk alley" is live. ♪